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Although I haven’t seen any statistics, I’m reasonably confident that most investors have at least one of the Magnificent Seven in their Stocks and Shares ISA. Given these companies’ strong earnings growth, massive influence and the hype surrounding artificial intelligence (AI), it stands to reason they’d feature in many portfolios.
Indeed, I have an AI investment fund in my ISA. I was therefore affected by the news that DeepSeek has become the most popular free app to download. Nvidia, in particular, was affected. Its shares fell over 15% after investors feared that the arrival of the Chinese large language model would result in lower demand for its chips.
Personally, I think the impact of DeepSeek has been exaggerated. Is it credible that it was developed for $6m? After all, ChatGPT’s cost more than $1bn to train. I don’t think so.
I know China’s able to make most things cheaper than the rest of the world. But I find it hard to believe that a piece of software that’s hailed as such a game-changer, can be developed for a tiny fraction of the market-cap of Nvidia.
But whatever the truth of the matter, it’s certainly been a wake-up call for the tech sector. And AI stocks in particular. Until the situation becomes clearer, I think now’s a good time for investors to go back to basics. Putting some ‘old-fashioned’ stocks in their ISAs might be the way to go.
And there’s one energy company that could fit the bill.
Drill, baby, drill?
It’s believed that oil was first extracted from the ground over 1,500 years ago. You can’t get much more retro than that! BP (LSE:BP.) benefitted greatly from the rise in energy prices following Russia’s invasion of Ukraine. Its shares reached a peak of 560p, in February 2023.
However, oil and gas prices have slipped back closer to historical averages. This means the energy giant’s stock’s currently changing hands for around 423p.
When conditions are in its favour, BP’s been described as a “cash machine”. Whether we like it or not, the demand for oil and gas continues to rise. And with President Trump back in the White House, the prospects for the industry look good. With significant operations in the United States, the group should be well placed to benefit from the more favourable political environment.
But getting hydrocarbons out of the ground is incredibly difficult and carries many technical, operational and financial risks. BP’s still paying compensation for the Deepwater Horizon disaster of 2010.
That’s why investors who hold energy stocks in their ISAs generally look for ones that pay a generous dividend. It should be at a level sufficient to compensate them for the increased risk of owning a share in that particular industry. And although BP currently offers an above-average yield of 5.8%, other less risky stocks offer a higher return.
It’s virtually impossible to predict what its future level of earnings might be due to the unpredictable nature of — among other things — the oil price.
Given the recent market turbulence, I do think it would be a good approach to look for bargains outside of the tech sector. But I think investors who are in a position to invest should consider steering clear of BP and look for other opportunities.
